Corporate Effective Tax Rates: A Study On Malaysian Public Listed Companies

Abstract

This study examines corporate effective tax rates (ETRs) of large Malaysian listed companies during the new tax regime, and further investigates the relationship between corporate ETRs and their attributes. The goal of this study is to compare the effective tax rate effectively experienced by each company within and across sectors, and to provide evidence for factors that cause corporate ETRs to diverge from the statutory tax rate (STR). Using a micro backward-looking approach from a balanced panel sample of 294 companies (1470 firm-years) for the years 2000 to 2004, the study provides evidence for the variability of corporate ETRs within and across sectors in which the average corporate ETRs falls below the STR of 28%. The statistical results indicate that companies that face higher ETRs are from properties, trading and services and constructions sectors. The statistical results also reveal that lower ETRs are associated with highly leverage companies, greater investments in fixed assets and extensive foreign operations. Further, a negative coefficient for return on assets suggests that companies have benefited from tax incentives provided by the government. However, the finding provides support for the political cost theory, which suggests that larger companies face higher ETRs. Hence, this study contributes to tax literature and policymakers on the impact of tax incentives of corporate ETRs and determinants of corporate ETRs. Keywords : effective tax rates, statutory tax rate, tax incentives, public listed company and new tax regime.